If the government's fiscal policy objective is to fix the size of the outstanding public debt at its current level it must:
A) cut taxes and raise expenditures to increase the budget deficit.
B) have a primary budget surplus equal to its interest payments on the public debt.
C) have a structural budget surplus equal to the outstanding public debt.
D) cut taxes and cut expenditures by equal amounts to make a balanced change in the budget.

Question

Quizplus · Accepted Answer

To keep the size of the outstanding public debt at its current level, the government must ensure that its primary budget (the budget excluding interest payments on the debt) has a surplus exactly equal to the interest payments on the public debt. This way, the surplus can be used to pay off the interest, preventing the debt from growing.

If the Government's Fiscal Policy Objective Is to Fix the Size